The Big Bet That Gold Will Hit an All-Time High

If you are a gold bug, the last three months has not been fun. You have watched stocks rise to multi-year highs, while gold has fallen roughly 4.6 percent.

In February alone, gold is off 20 points, but now we are at least seeing some bullish bets being placed.

Wednesday morning, we saw an institutional trade in the Gold ETF in which a trader bought 9,517 GLD May 172-strike calls while selling the May 188-strike calls. The trader paid $.65 for this trade, and it will profit if GLD trades above $172.65 by May expiration. The trader also allowed plenty of room for the stock to run—the position is not called away until up at $188.

What's most interesting about the trade is that the trader is not really outlaying a whole lot of cash to enter into the trade. In addition, notice that the trader is not willing to be long GLD until it nears an all-time high, which for the record is $174.07 per share.

When you see traders buy cheap calls or call spreads, it has been my experience that a move higher is going to happen relatively soon or not at all. Indeed, this trader is seeking a near-term rally that potentially ends what has been a bear market for gold.

So do I agree that gold is headed higher in the next 30 to 60 days? The answer is simple: No!

I am long GLD myself and for clients, but I have sold in-the-money calls against my position to reduce my exposure to the commodity. The fundamentals are just not lining up for a gold bug kind of year, despite the continued money printing by the Federal Reserve and other central banks.

How's that? Well, I think some gold traders forget to look at how monetary purchases by central bankers actually affect the real lending and circulation of those printed currencies. The monetary base has really not increased as much as you would have expected, as banks continue to hold massive amounts of cash in reserve. This lack of lending has diminished the real monetary base expansion that the Federal Reserve had hoped and dreamed of.

Also, the European Central Bank and the rest of Europe has been tame on their monetary base expansion, and we have seen euro/dollar strengthen this year. Throw those two together along with a gold volatility index that is up over 10 percent in the last couple of weeks, and there is concern that gold will see more pain in the next few weeks.

The option trade that went up Wednesday morning could have been intended as a hedge against volatility and a move to a risk-off environment, and I do think that this is a decent hedging trade.

That said, there is a gap in the chart of GLD between $158.50 and $157.25, and it is likely that gold could head down to those levels before this option trader sees the pop that the trade needs.

Disclosures: Brian Stutland is long GLD for himself and his clients.

Brian Stutland is Managing Member of Stutland Equities and a contributor to CNBC's "Options Action."